Germany Extends EV Tax Credit Through 2035 – CleanTechnica

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There are two kinds of subsidies — direct and indirect. For years, Germany had direct financial incentives to encourage people to purchase or lease an electric car. When those ended abruptly in December of 2023, EV sales in Germany tumbled. But there has been an indirect subsidy in place for electric cars all along in the form of a tax exemption on new cars. Now the German government has announced it will continue that policy for at least five more years.

According to Handelsblatt, federal finance minister Lars Klingbeil told the German Press Agency this week, “To get many more electric cars on the road in the coming years, we must create the right incentives now. That’s why we will continue to exempt electric cars from vehicle tax.” He added that he would submit a draft bill to make the new policy binding shortly.

Under current regulations, the tax exemption for newly registered battery electric vehicles ends on January 1, 2026. However, that regulation is now to be extended for five years in order to encourage the ownership of battery electric vehicles that are first registered no later than December 31, 2030, Handelsblatt reports.

It also said the tax exemption would be extended until the end of 2035. We are unable to resolve the discrepancy. Perhaps it is the result of an error by Google Translate. If there are any readers who can explain the conflicting statements, please share what you know with us. The Handelsblatt story refers specifically to battery electric cars, which leaves the question of what the tax consequences are for other cars with plugs.

The new policy involves an amendment to the Motor Vehicle Tax Act. The federal government expects a reduction in tax revenue due to the extension estimated at €45 million for 2026. In subsequent years, the expected revenue shortfalls will increase to €105 million in 2027, €180 million in 2028, and up to €370 million in 2030.

A Chancery Meeting On EV Policy This Week

The finance minister called the vehicle tax exemption a building block for the measures to be discussed on October 9 at the Automobile Dialogue event, which will be hosted by Chancellor Friedrich Merz. “We must now put together a strong package to lead the German automotive industry into the future and secure jobs. We want the best cars to continue to be built in Germany. Everyone knows that the future is electric,” Merz said.

Actually, Herr Merz, there are some significant actors in the automotive space who want to go back to burning coal gas for our transportation needs. The effort by Germany to promote electric cars is laudable, but far from universally accepted.

In addition to several federal ministers, representatives from Germany’s federal states, the automotive industry, and trade unions are participating in the meeting at the Chancellery. The automotive industry is struggling with a sales slump, competition from China, and the shift toward e-mobility. Added to this is the tariff dispute with the US. With all of those pressures converging, many automakers in Germany are pursuing austerity measures and cutting jobs.

Hildegard Müller, president of the German Association of the Automotive Industry, has demanded that the coalition ensure the extension of the vehicle tax exemption for purely electric vehicles until 2035 as soon as possible — as promised in the coalition agreement. “The tax exemption has proven to be an effective incentive to purchase electric vehicles, but would no longer apply to new registrations from January 1, 2026 — with significant consequences for the further ramp-up of e-mobility for passenger cars and commercial vehicles.”

The extension of the motor vehicle tax exemption for electric cars is one of the points that the governing political parties in Germany — CDU, CSU, and SPD — have already agreed upon in their coalition agreement as a way to strengthen the automotive industry. It was to be implemented as the third measure after the increase in the gross price limit for tax incentives for electric vehicles to €100,000 and the creation of a special depreciation allowance for electric vehicles — both measures the parties have already agreed to as part of a so-called “investment booster.”

In the summer, there were reports that the project was on the brink of collapse due to the federal government’s tense financial situation. At the time, the Ministry of Finance said that this measure, like all others in the coalition agreement, was “subject to financing.”

At the Chancery meeting later this week, global issues such as sales trends in China and the tariff conflict with the US will also be discussed. According to the DPA, the car summit could also discuss the program for low and middle income households agreed to by the CDU/CSU and SPD in their coalition agreement. The “social leasing program” in France is seen as a model for that approach, but there has been little discussion about it in the news lately.

Social Leasing And Electric Cars

Social leasing is a new concept to many of us here at CleanTechnica global headquarters, so we turned to Google for help. According to a Transport & Environment post from a year ago, “Social leasing is a support measure for middle and low income households designed to facilitate access to an EV. Included in the national social climate plans, it will be a key measure in making the EV market more democratic and speeding up the move away from fossil fuels.”

It is designed to make EVs accessible to lower and middle income groups by offering affordable monthly leasing options in order to democratize EV markets and accelerate the shift away from fossil fuels. It could also financial hardships that might be caused by carbon pricing mechanisms like the EU’s ETS2 Emissions Trading System, which is scheduled to go into effect  in 2027.

France initiated its social leasing program in December 2023, T&E said, making EVs available for €49 to €150 per month and combining public subsidies with leasing to target the bottom half of the population in income. “The program saw strong demand, with over 90,000 applications and 50,000 accepted, doubling initial expectations. Most beneficiaries were younger and had lower incomes compared to typical new EV buyers. The scheme is set to continue in 2025 with adjustments to improve efficiency and transparency.”

[Note: Brits and Europeans use the word “scheme” in an entirely different way than Americans do. To them, it just means a plan. To Americans, it connotes criminal collusion and backroom deals. It is important to define the terms used in a debate in order not to get sidetracked by linguistic misunderstandings.]

Many readers will recall that exemption from taxes for new electric cars was a key component of Norway’s package of EV incentives. That policy worked spectacularly well and helped make Norway a leader in the EV revolution globally.